03 Mar 2022

How the war in Ukraine affects Bitcoin’s underlying narratives

As war ravages Ukraine and global capital controls intensify, Bitcoin plays a relevant role as a fundraising tool and store of value. How will this war affect Bitcoin’s underlying narratives?
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For the time being, bitcoin is not widely used in the real economy, and people are still trying to figure out its use cases. Therefore, narratives describing why we need Bitcoin are the primary drivers for Bitcoin’s value proposition and increased adoption.Narratives can be both positive and negative. An example of a positive narrative is “Bitcoin as digital gold”. Similarly, a negative narrative that Bitcoin has struggled with is the energy consumption narrative.The war in Ukraine will undoubtedly lead to some changes in Bitcoin’s narratives. In this article, I discuss two narratives that I believe will become increasingly important due to this war.
Bitcoin as a powerful fundraising tool
So far, Bitcoin’s most important role in the war has been to serve as a powerful fundraising tool for Ukraine. Thousands of people globally have donated tens of millions of dollars worth of bitcoin, and other cryptocurrencies, to Ukraine to help the country in this difficult time.On February 24th, the Ukrainian NGO Come Back Alive started raising crypto. Donations poured in, and after just one day, they had raised more than $4 million.
Screenshot 2022-03-03 110304
Source: Twitter (@ukraine)
Come Back Alive’s crypto fundraising success must have inspired the Ukrainian Government, which started raising crypto on February 24th, posting Bitcoin and Ethereum addresses on Twitter.
Ukraine crypto donations
Source: Slowmist AML
Crypto donations continued pouring in during the following days. Per March 4th, the Ukrainian Government and various NGOs and DAOs have collected $68 million in crypto.
Why are cryptocurrencies such great fundraising tools?
First of all, it's an easy, cheap, and fast way to do cross-border transactions, both for the sender and the recipient. The recipient can simply post a crypto address online, allowing donors to copy and paste the address into their crypto wallet to send funds.Compare that to a foreign bank transfer, where you need to provide an IBAN code, a SWIFT code, and the recipient's name and address.Most people want to support a good cause, but the reality is that the easier it is to make the final transaction, the more people will donate. By streamlining the cross-border transaction process with crypto, foreign fundraising campaigns can raise even more money than they can with traditional foreign bank transfers.In addition to the more straightforward transaction process, the openness of the blockchain makes it possible for potential donors to verify the crypto address of a receiver in a blockchain explorer before donating. This verification possibility increases transparency and safety and makes people more likely to contribute.Thirdly, after making a crypto donation, you can monitor your transaction's status in a block explorer to see if the recipient has received the funds. Compare that to a foreign bank transfer where you can never be sure if the money has arrived.Seeing the massive amounts of crypto raised by Ukraine with such ease and transparency leads me to ask: "Have we underestimated the power of using cryptocurrencies for fundraising?"Fundraising is one of the most valuable immediate use cases for bitcoin and other cryptocurrencies. Therefore, Bitcoin as a superior fundraising tool will grow into one of the most supportive and legitimizing narratives for Bitcoin.
Bitcoin as a safe haven asset
This narrative exists is already strong within the Bitcoin community, but the mainstream has yet to understand how powerful of a value proposition this is. That will change in the coming months, as capital controls continue to intensify globally, incentivizing people to look for safe havens for their assets.In the days following Russia’s invasion of Ukraine, both the western block and Russia have introduced the strictest capital controls in decades. The West sanctions certain Russian companies, banks, and oligarchs, forbidding western persons and companies to transact with them.Until now, ordinary Russians that have nothing to do with this war have not been targeted, but it’s still naive to believe that the extreme sanctions imposed on Russia will not affect ordinary Russian citizens' access to banking services.Also, the Russian Government has imposed strict capital controls on its citizens to prevent capital from leaving the country. With Russian banks on the verge of collapse and the ruble losing almost 30% of its value since the invasion, the Russian Government desperately tries to prevent capital from leaving the country.
Source: Tradingview (Binance)
So, what have ordinary Russians been doing since the invasion to preserve their wealth in this time of uncertainty?Russians are buying crypto like never before.Ruble volumes on Binance surged in the days following the invasion, with the USDT/RUB pair seeing an all-time high on February 28th. The bitcoin volume also saw a substantial rise. These volume increases could indicate that Russians seek bitcoin or stablecoin exposure ahead of possible capital controls.
Source: Tradingview (Binance)
Like the Russians, Ukrainians are also buying crypto, as both the USDT/UAH and BTC/UAH pairs on Binance see significant increases in trading volumes. Many Ukrainians worry that the country's banking system may collapse and seek bitcoin and USDT as safe havens for their savings.In addition, by exchanging their liquid assets for bitcoin, Ukrainians can escape the country and bring some of their wealth with them, just like described by this Ukrainian refugee.
What makes bitcoin a sought-after safe haven asset in uncertain times?
The Ukraine war has already led to the most extreme capital control measures in decades, and they may very well intensify. More and more people realize that the money in their bank accounts is not their private property, as banks can freeze accounts or, in other ways, prevent people from transacting at the click of a button.In contrast to a bank account, you, and only you, control your bitcoin as long as you use a non-custodial wallet. Nobody can prevent you from making transactions. When things are calm and peaceful, people forget how important this property is. But when conflict and capital controls intensify, it becomes clear why this property of Bitcoin is so valuable.As governments increasingly impose capital controls on the general population, more people will appreciate that with bitcoin, you fully control your funds without depending on the goodwill of a trusted third party.
The Bitcoin narratives are changing. Crypto donations are pouring into Ukraine, drawing attention to bitcoin, and other cryptocurrencies, as powerful fundraising tools.In addition, capital controls are intensifying, making more and more people realize the value of bitcoin as a safe haven asset.The coming months will be critical for the world, and we could potentially see these bitcoin narratives shine.
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